As finance ministers gather this week in Washington DC they cannot but agree and commit to fighting extreme poverty. All of us must rejoice in the fact that over the past 15 years, the world has reportedly already “halved the number of poor people living on the planet”.
But none of us really knows it for sure. It could be less, it could be more. In fact, for every crucial issue related to human development, whether it is poverty, inequality, employment, environment or urbanization, there is a seminal crisis at the heart of global decision making – the crisis of poor data. Read more
After a lull of several weeks, an upsurge of fighting near Donetsk is once again threatening Ukraine’s fragile ceasefire. A resumption of the Russian-backed offensive had been widely expected to follow last weekend’s Orthodox Easter celebrations, although Vladimir Putin’s precise intentions remain unclear. Is this the next phase of a slow-motion land grab, with Mariupol possibly the next target, or is it just a means of ratcheting up the pressure in an effort to force new concessions? Either way, Ukraine is going to need a lot more international support to weather the crisis. Read more
Vladimir Putin, Russia’s president, likes to say that Russians and Ukrainians are one people. Such views are reminiscent of the Tsarist Russian Empire and negate Ukraine’s recognition as a separate nation in the Soviet Union, whose collapse he laments as the “major geopolitical disaster” of the past century. Moscow, indeed, views the Ukrainian state as at best a legend or fantasy.
Yet Russians and Ukrainians hold widely divergent attitudes to their Soviet past. Nearly half of Russians believe the “sacrifices” (mass murder) made under Soviet leader Joseph Stalin were justified by rapid economic growth. Nearly 40 per cent of Russians view Stalin positively, according the a poll by the Levada Centre. Read more
Geo-economics was defined by its intellectual godfather, Edward Luttwak, as a contest defined by the grammar of commerce but the logic of war. Today, one of the most pernicious tools in this global contest is the evolving role of government in a market economy. It was one thing to fight the battle of communism v. capitalism. It is quite another to fail to recognize today’s competition is increasingly over the rules, norms and tools of state involvement in capitalism itself.
For decades, the US led global economic order largely advocated the position that the economic role of government should be limited. Ideally, governments should set the ground rules for investment and commerce via just laws and regulations and enforce them fairly both domestically and internationally. Beyond that, let the free market rule. Read more
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As revelations about cyber-attacks launched against the US last autumn show, Russia is engaged in a relentless intelligence war against the west. Other targets of Russian cyber-warfare have included Germany, Estonia, Romania, Ukraine and Georgia. As James Clapper, the US director of National Intelligence, recently told the US Senate, the Russian threat is “more severe than we have previously assessed”. The ability of Russian hackers to successfully access the State Department and White House computer networks should serve as a wake-up call. The US and its Nato allies must respond by developing a more effective tool kit for dealing with this threat. Read more
Whatever the result of Argentina’s presidential election later this year, the country will be in a different place a year from now with a new and more pragmatic government running the country. All the main contenders for president in the next government have similar ‘four pronged’ approach to address Argentina’s economic problems. Investors should look through this election ‘noise’ and towards the new government’s coming macro-economic reforms which we believe will usher in a new Argentina.
The era of Cristina Fernández de Kirchner, president, is set to be remembered as a strange epoch that began with default and ended with default. The Kirchners oversaw the restoration of order in Argentina after the chaos that accompanied the 2001 default, but then became bogged down by unnecessary confrontations and economic mismanagement. Read more
The Russian rouble has moved from above 70 to the US dollar in late January to around 50 in mid-April, making it one of the best-performing currencies in the world this year. This is particularly remarkable as the dollar has been quite strong during this period, continuing to appreciate against the euro. So, what is behind this sudden rouble strength?
For most of last year, the rouble traded on the oil price and geopolitics, so it could be assumed that either of those two factors has changed materially. The oil price has moved from $56 to $60 per barrel this year, and the so-called Minsk II agreement was reached on February 12. Is that enough to explain the recovery? Probably not, especially considering that the oil price has been flat over the past two months while the rouble rallied the most. The rouble thus seems to have de-correlated from the oil price, at least partially and temporarily. And there has been fairly broad international scepticism over the Minsk II agreement (which we do not share by the way), making it difficult to believe that that is the reason behind the rouble’s strength. Read more
Argentina recently announced a deal to buy nuclear reactors from China, one of which is expected to be of original design. The anticipated export of the indigenously developed Hualong One is a symbol of how far China has come in a relatively short space of time. It has been able to manipulate its expanding domestic market to make a meteoric rise in terms of technological development.
A relative latecomer to nuclear power, its first reactor was connected to the grid in 1991. Less than 25 years later, China is now aiming to become a major player in the supply of nuclear technology to the world. Read more
Over the weekend of 28-29 March 2015, a Chinese government “special leading group” was set up to oversee progress on the “Silk Road Economic Belt” and the “21st-Century Maritime Silk Road”, and an action plan was released.
China’s top leadership started talking about a “new silk road” almost as soon as it came into office. President Xi Jinping gave back-to-back speeches on the subject in Kazakhstan and Indonesia in September and October 2013. The Indonesia speech was also the occasion for Xi’s announcement of plans for an Asia Infrastructure Investment Bank (AIIB) with a capital of US$100bn to leverage into the scheme. Xi has also announced that China will provide further financial backing through a US$40bn Silk Road Fund.
Grandiose political rhetoric is nothing new. But economic developments are catching up with – or are already ahead of – the financial diplomacy. Read more
On the African continent, peaceful transitions of power through free and fair elections are a true rarity. Despite the odds, General Muhammadu Buhari delivered an impressive victory over incumbent president Goodluck Jonathan in last month’s presidential election in Nigeria and is set to take office next month.
While Buhari’s coalition party, All Progressives Congress (APC), won a majority of the seats in the National Assembly, last month’s elections are certainly not the final word in Nigeria’s electoral process.
On Saturday, April 11, Nigerians returned to the polls to vote for both State governors and State Houses of Assembly. These were local elections, and the saying that “all politics is local” certainly holds true in Nigeria. During the country’s local elections, the APC once again defied the odds, and gained control of a majority of the country’s governorships. Read more
After China’s notable political success in registering more than 35 applicants for funding membership of the yet to be launched Asia Infrastructure Investment Bank (AIIB), some important issues remain to be addressed that will determine the long term success of the new institution.
Scope of intervention: China-centric or Asia-focused? It is no coincidence that the set-up of the bank comes at the same time Beijing is rolling out its “one road, one belt” action plan. The revival of the Silk Road is part of the charm initiative aiming at winning greater consideration from neighboring countries as much as fostering trade relationships. Read more
The rush by African sovereigns to issue in the Eurobond market is creating problems. When interest rates in the US eventually rise, the burden of servicing new Eurobond interest payments will also rise. Any new issuance will also likely be priced higher. Adding to the burden of higher debt servicing costs, the low oil and commodity price environment is reducing export revenues – the very revenues that sovereigns need to service debt.
Some sovereigns (and possibly some corporates) could struggle to meet private creditor debt service payments, which would increase roll-over risk, ushering in a new era of debt relief. Read more
Global gabfests on international development are an easy target for ridicule, given that some of them contribute little more than wordy declarations with minimal relevance for the world’s poor. This year, however, promises something different. Two crucial summits — at the United Nations in September and in Paris in December — will result in a set of global development goals for 2015 to 2030 and a new treaty on climate change, respectively.
In reality, the success of both summits will hinge on whether the world can first solve the trickier issue of how to finance such efforts. This will be the subject of a less high-profile but arguably more important summit in July in Addis Ababa, Ethiopia. Successfully bridging the growing divisions between developed and developing countries over their respective funding obligations can smooth the path for the other two events. Failure to come to agreement on financing will likely doom them. Read more
Not long ago, the world praised Chile as an exception among South American nations. We were the classic “star pupil”, the guy who is definitely not popular at school: instead of playing fine soccer, instead of dancing joyfully, we concentrated on homework. Nowadays, any observer of Chile’s reality can easily deduce that our glories have withered to a failed experiment, rather than blooming as a role model. Pushing the allegory further, the once brilliant student has ended up shoplifting and smoking dope. Read more
Only five months after being narrowly reelected, Dilma Rousseff, Brazil’s president, faces a growing array of problems, including a major bribery scandal and myriad economic challenges. Hundreds of thousands of Brazilians have taken part in recent protests against her, with many calling for her impeachment. And it wasn’t the first time demonstrations have rocked the country during Rousseff’s tenure –millions also took to the streets in the run-up to the 2014 World Cup.
But Rousseff is hardly the only leader of an emerging market to face public anger in recent years. Protest movements have erupted in the Middle East, eastern Europe, Asia, and Latin America. Emerging markets have benefited in many ways from globalisation, but rising incomes have also led to rising expectations. Newly empowered citizens in the emerging world are demanding more accountability from their leaders, and as a result we are likely to see more protests and upheaval. Read more
Holidaying in Bali is often synonymous with bottled Bintang Beer, Indonesia’s biggest selling brew, popularly enjoyed by the beach or the poolside while basking in the sun.
But access to Bintang and all other beers could soon get much tougher. Next month, the government, partly at the behest of conservative Islamic groups, is expected to introduce a regulation prohibiting the sale of beer at convenience stores and small corner shops, restricting its sale to supermarkets and hypermarkets (as is the case with wine and spirits) and in restaurants and bars at marked-up prices. Read more
In 2004 and 2005, Bulgaria was unexpectedly hit by torrential rain that caused extensive flooding. To deal with the destruction, the government awarded nearly €67m to 257 flood-stricken municipalities (see map below). For many of Bulgaria’s impoverished municipalities, the funds were a substantial financial injection, and mayors and local councils were the ultimate authority on how the money was spent. Not surprisingly in a country ranked as the second-most corrupt in the EU, the media uncovered multiple instances of local politicians pocketing the money. According to estimates by opposition parties, €59m disappeared into the coffers of firms related to the ruling political coalition.
Distribution of flood funds, per capita (in lev)
Twenty-one years after its genocide, Rwanda ranks 46th in the world for ease of doing business according to the World Bank, four spots below its former coloniser Belgium. This is flattering. And the rush with which international lenders financed its energy utility’s first solar public private partnership (PPP) demonstrates that this ranking is not empty academic musing. Yet, in the same manner in which Rwandans drew on their own internal reserves of strength and resilience to rebuild their nation, so too should they draw on their own reserves of capital to build the nation’s infrastructure. Read more
The All Progressives Congress (APC), led by former military leader General Muhammadu Buhari, has won Nigeria’s presidential election, unseating the People’s Democratic Party (PDP) that has dominated the country since its 1999 transition to civilian rule.
The election symbolises the institutional change that made the PDP’s election upset possible. Against considerable odds, INEC, Nigeria’s independent electoral commission, played a key role in delivering credible elections. The implications run deep. This glimpse of institutional strength speaks powerfully about Nigeria’s future as the African economic powerhouse that might yet emerge with continued, sustained reforms. Read more
Mexico, like many emerging markets, is going through a period of exchange rate depreciation that has the peso close to its lowest levels in history. Emerging markets typically tighten their monetary and fiscal policies to fight large depreciations, to avoid high inflation and financial instability. Mexico tightened its fiscal policy a few weeks ago by cutting public expenditures and it will probably cut expenditures again in 2016. And the Mexican central bank has sent the message that it will most likely increase its overnight rate target in the coming months. Is Mexico tightening its fiscal and monetary policies out of fear of floating?
Not at all. Read more